Ensuring Inclusivity and Resilience in India’s payment landscape

The initial euphoria around the rise of digital payments has given way to a more complex conversation: How can we democratize the payments landscape to ensure equal participation for all, digital natives and non-digital users alike? The goal is to avoid a future where reliance on a single payment method eliminates all others. If that system fails, it could cause irreversible damage to the economy.

This isn't just unfounded fear. In Australia, cash use and card swiping have become rare, with over half of ATMs and a third of bank branches closing since 2019, driven by a focus on digital payments. Australia was one of the top three countries hit hardest during the global IT outage in July. While supermarkets, banks, and transportation were affected by electronic payment failures, businesses that only accept digital payments were hit the hardest. Relying solely on one payment system can backfire. Countries that embraced a single payment mode are now realizing the perils, and are working to fix it.??

Economies like Sweden, which fully embraced digital payments with the launch of Swish in 2012—ubiquitous from market stalls to coffee shops—have now begun to feel the pressures of IT outages, security threats and a growing concern for those left behind. Similarly, Norway’s Vipps, which merged with Denmark's MobilePay in 2022 to form Vipps MobilePay, has seen tremendous success but is now grappling with similar challenges.

Over the past 15 years, cash usage for payments in Australia has dropped by 10% annually, falling to just 13% of all transactions in 2022. This decline has increased the cost of handling cash, as high fixed costs and volume-based contracts for delivery and pick-up drive up expenses, prompting merchants to favor a non-cash ecosystem. It's important to note that central banks issue and provide cash, while commercial banks operate the cash infrastructure. Commercial banks often view cash as a cost driver, focusing instead on electronic payment development.?

Despite Australia’s diminishing cash infrastructure, Reserve Bank of Australia data shows ATM withdrawals rose 2.7% between July and August 2024, indicating that Australians are going further to access cash despite the challenges. In response, the Reserve Bank, along with major banks and retailers, is now exploring ways to create a more sustainable cash management system, such as installing advanced ATMs and optimizing transit truck routes.?

Back home, societal behaviour has been rather curious. Despite demonetization and COVID-19 boosting demand for contactless payments and logically reducing the need for cash, CIC—the total amount of cash, coins, and paper notes available for transactions—is on the rise.?

If we consider the Indian payment ecosystem from 2009 to 2024, ATMs have increased by 108%, totalling 258,000, while bank branches rose by 37% to 159,633, with a projected average growth of 7.5% over the next five years. During the same period, CIC grew by 56%, compared to a 4.2% growth in FY24. Key digital enablers introduced between 2014 and 2020—including the largest currency swap exercise in the world in 2016, instant mobile payments, and the Jan Dhan Aadhar Mobile trinity—have driven record transaction volumes.

Our proprietary CMS Cash Index, established in 2016 to track the infusion of cash back into the economy, shows a strong correlation with the HSBC Purchase Manager’s Index since its inception in 2017. The CMS Cash Index has increased from 100 to 117.8, while the HSBC PMI rose from 100 to 110.4 between 2016 and 2024, highlighting the significant relationship between economic activity and cash expenditures. In India, since March 2017, CIC has more than doubled, growing from ?13.35 lakh crore to ?35.15 lakh crore by March 2024.

This trend is unique when compared to the global scene, where regulators are navigating a “vanishing hybrid payment world. In the U.S. CIC continues to rise, now exceeding $2.3 trillion despite being a credit card-led economy. In fact, cash remains dominant in the payments landscape, with credit and debit cards following. Notably, the U.S. experienced the largest year-over-year increase in CIC during COVID, amounting to $304 billion. Interestingly, the US is among the leading countries, alongwith China, that is considering levying a fine on businesses that don’t accept cash. There are talks to urge the UK to consider a law that requires all businesses to offer payment choices to the customer beyond digital.

Closer home, Thailand has divided itself into micro-grids to ensure each micro-market has a cash point based on cash intensity. According to data from the Bank of Spain, four bank branches close every day, totalling 18,000, which means a 44% reduction in bank branches from 2015 to 2024. Despite this, cash withdrawals from ATMs grew by 30% compared to pre-pandemic levels, with 65% of the population using cash daily. In Denmark, stores are now obligated to accept cash as payment. In the Scandinavian country, just 10% of payments in stores are made in cash - that’s already half as much as in 2017.? That’s relatively unusual compared to much of the eurozone, where more than half of commercial payments are made in cash.?

This brings us to the fundamental question. Why do some people resist cash??

The belief that cash is exclusive to the grey economy is misguided. When we consider who uses cash—daily wage earners, senior citizens, individuals in rural areas, those lacking digital literacy, and small business owners—a different picture emerges.?

In reality, cash plays a crucial role in everyday transactions, fuelling economic activity and driving consumer spending. According to our 2024 Report on annual consumption trends, only 9 out of 23 states and union territories saw an average year-on-year decline of 4.14% in annual average ATM withdrawals in FY24, while there was a 5.51% growth in monthly average ATM cash withdrawals (used as a proxy for consumption spending), rising to ?1.43 crore in FY24 from ?1.35 crore in FY23. Monthly average ATM cash withdrawals in FY24 exceeded those in FY23, with withdrawals in 10 out of 12 months surpassing the FY23 monthly average by 7.23%.

What happens if cash usage declines significantly? An economy heavily reliant on digital payments risks excluding vulnerable populations and may lose financial inclusivity. If access to cash diminishes, many individuals could lose the right to choose their payment mode.

Safeguarding cash access points like ATMs and bank branches while ensuring merchants have the technology for diverse payment methods, is critical. As cash usage declines, the erosion of key infrastructure follows. While commercial banks focus on profit, central banks must balance this with societal objectives.

Relying solely on a single payment infrastructure leaves the economy vulnerable to tech outages, security breaches, or cyber warfare, directly affecting daily transactions. Globally, around 85 million unbanked adults still receive government payments in cash, highlighting the importance of collaboration across regulators, merchants, consumers, and technology stakeholders to ensure a balanced, accessible payment system that offers equilibrium yet sustainable and resilient.